Money Express with Jill Kerby: Amateur landlords …costly evictions

Yes, the pick-up in property prices is good news, especially for people in negative equity.

Yes, the pick-up in property prices is good news, especially for people in negative equity.

@JillKerby

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But rising prices don’t necessarily reflect similar rises in rents, though there is certainly plenty of evidence that rents are going up as well in Dublin, especially for family sized homes in good neighbourhoods.

Anyone thinking of becoming an amateur landlord on foot of the burgeoning property recovery needs to watch the sale price/ rental yield very carefully.

Last week, I wrote about the personal investment experiences of some friends and acquaintances. The first example I gave was a very close friend in Canada who in her 50s became an amateur landlord, buying a large old house, converted to apartments in an established renting neighbourhood in Toronto. She used a large down-payment and carefully factored in every possible cost. She even worked out how to accelerate her repayments in time to avoid carrying much debt into her retirement.

The second example was of a composite of the experience of most of my Irish friends who…well, did none of those prudent things during our mad, bad property boom years.

Needless to say, they are now watching property prices like hawks in the hope of cutting their negative equity and losses….before their banks force them to, with potentially dire consequences.

First, let me say that I’m not against investing in a property market where prices are keen and affordable. Because I already own my own home and property funds exist in my pension fund, I prefer not to own individual properties.

Nevertheless I have three friends who are very successful amateur landlords. They bought their properties several years before, and a few years since, the property bubble burst. Their properties were affordable and the rental stream still cover their costs.

However, when I asked my friends about their worst experiences as amateurs – something must have gone wrong at some time - I expected to hear about long void periods and expensive repair and redecoration costs.

All this can be a problem, they said, but no, each of their all time low points came when they had to deal with an – albeit - rare and unpleasant eviction.

Here in Ireland there is a statutory eviction process with set notice periods, including reasonable time given to the tenant to pay arrears and if not resolved, a final contract termination date. Where tenants refuse to leave, the Private Rental Tenancies Board will intervene. Mediation and adjudication here can be time-consuming, but the process itself is not expensive.

Pursuing the arrears is another matter, and while loss of revenue is bad enough, my friends said, the worst thing, “is to be in the red from losing rent and to find your place has been wrecked by your angry ex-tenant when they finally leave.”

Back in Ontario, my new amateur landlord friend said she too has been warned a out messy evictions: there, the rental market is heavily regulated by the state (which caps rents hikes based on inflation figures) and rent evictions are frequently disputed by tenants, because they know they process is so long. The landlord’s final bill can eventually be as high as $5,000.

“I’ve inherited great tenants, so fingers crossed. But it takes an average of 75 days for hearings to be completed in Ontario after waiting 28 days for the hearing. You should expect to lose three months rent, I was told. Meanwhile, eviction hearing applications cost $170 each; legal advice/representation averages $360, and if the sheriff has to be present at the eviction that’s another $300.

“A landlord organisation claims that the average amount of damage when there’s a disputed eviction is $500,” my friend explained, “and re-leasing costs – advertising, using a letting agent – can put you back another $1,200.”

“Loads of people gave me ‘eviction’ advice,” she said. “Mainly, it was to always follow the law and give proper notice, but to also try and avoid the official dispute process.

“Instead, they suggested being sympathetic and trying to reason (at least at first) with your tenant. Point out the difficulties they’ll have – with their credit rating agency or, with you, in the small claims court”.

Every experienced landlord repeats the same advice: get an eviction over with as quickly and cost effectively as possible.

To be a successful landlord, treble check tenants’ bona fides…before they move in.

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